A major overhaul of the way self-employed people and self-employed people report income tax in the UK has been delayed for a third time after criticism that the government’s IT systems were not properly tested and how much did taxpayers know about the reforms.
The Treasury announced on Monday that the mandatory use of the HM Revenue & Customs Making Tax Digital scheme for self-assessment tax will be delayed by two years until April 2026. 2015 and for the first time requires quarterly, not annual, self-assessment tax returns through the new software.
The government has also changed the annual income threshold for MTD to £50,000 from April 2026, up from its original proposal of £10,000, amid fears that the lower limit would impose a burden -too heavy on small businesses. The threshold will drop to £30,000 from April 2027.
The Treasury said it will consult with the needs of businesses that will ultimately fall below the £30,000 threshold to ensure that income tax digitization meets their needs.
Alison Hobbs, chair of the digital strategy committee of professional bodies the Chartered Institute of Taxation and the Association of Taxation Technicians, said the delay was “bound to happen” due to “very limited testing” of MTD and the “big problem that still needs to be solved.”.
Earlier this year, a freedom of information request from the Saffery Champness account, showed that at one point only nine people were involved in the pilot of the scheme.
A survey of tax workers by CIOT and ATT earlier this month found that 97 percent of tax workers are uncomfortable with the decline in awareness. of taxpayers regarding MTD. Only 36 percent thought it necessary to change from annual to quarterly reporting.
Caroline Miskin, senior technical manager at the Institute of Chartered Accountants in England and Wales, said “Making Tax Digital requires fundamental changes in policy and design”.
He said that the problems with MTD include the inability of the system to employ more than one employee for each taxpayer, the lack of provisions for joint ownership, and the complicated procedure for the taxpayer in the tax-free accounting period.
As originally proposed by HMRC in 2015, MTD was due to start for income tax in April 2018, according to ICAEW.
“If the MTD project is delayed, it will be delayed by more than 10 years, there are big questions about its future viability and whether it will fulfill the intended political objectives, given the changes in the tax environment during that time,” said Nimesh Shah, chief executive. accounting firm Blick Rothenberg.
HMRC had planned to trial the MTD for company tax in 2024 and was due to publish it in 2026, but Paul Falvey, tax partner at the consultancy firm of the BDO business, said it could “result in too much risk” as it coincided with the start of the MTD for income tax and could be “a lot of work for our IT team”. of HMRC within a year”.
Tim Stovold, head of tax at management firm Moore Kingston Smith, said the MTD has become a “roadmap for tax reform”.
Jim Harra, chief executive and first permanent secretary at HMRC, said: “HMRC remains committed to delivering Making Tax Digital as a key part of our strategy to digital transformation and reforming the tax system, but we want to make sure we get it right. deliver it effectively.”